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RAIL TRANSPORT The gravy train is premium rail and imports are riding it

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The railroad industry is either riding to glory or heading for a train wreck, depending on who you talk to. Rail producers, for example, anticipate a pickup in sales, with much enthusiasm driven by demand for longer, stronger rails. But some analysts say shipping volumes and profits are down and are likely to remain so in the short term, although a long-term bull cycle might be in the making.

With North American railroads seen moving toward expanded capacity in coming years, many manufacturers expect rail sales to be brisk.

The U.S. market consumed about 1 million tons of rail in 2006, with at least that much anticipated this year as well, according to Steve Didyk, director of rail sales at Rocky Mountain Steel Mills (RMSM), Pueblo, Colo. The industry hasn't seen back-to-back 1-million-ton years since the late 1990s, he added.

And most manufacturers aren't worried about recent downturns in freight, he said. "Our customers have a wide variety of goods that they haul. If automotive is down, they're picking up coal and other materials."

Many observers are particularly enthusiastic about the market for long-length, heavy-duty rail capable of handling the increased loads of modern rail cars. Longer, stronger rails are especially valuable in areas such as the coal-rich Powder River Basin in Montana and Wyoming, where heavy coal cars travel long distances in sometimes difficult weather conditions.

But U.S. supply currently doesn't meet demand, especially for the high-end rail many consumers prefer. Rosemont, Ill.,-based Sumitomo Corp. of America, for example, supplies rail from Nippon Steel Corp., Tokyo, to many large North American railroad companies.

Of the 299,224 tons of standard rail imported by the United States last year, 66.8 percent, or 199,852 tons, came from Japan, according to McKees Rock, Pa.,-based SteelFacts. The Czech Republic accounted for another 22.7 percent, with 67,833 tons. Much of the Japanese rail is premium strength, while the Czech material is standard strength, observers said.

Steel Dynamics Inc. (SDI), Fort Wayne, Ind., hopes to grab a piece of the long-rail action. The company plans to boost rail production at its plant in Columbia City, Ind., but currently has its hands full with beam orders, Paul Kotsenas, SDI's manager of rail and special products, said.

But the company plans to install another rolling mill at Columbia City late this year or early next year, which should free up more capacity to make rail, Kotsenas said. The mill will produce rails 240 to 320 feet long and join them into strips as long as 1,600 feet at an on-site weld shop. "The only other mills producing those lengths are foreign," he said.

ArcelorMittal North America also is angling for a larger share of the premium rail market, which currently leans toward Japanese product, said Brian Elgart, the company's rail sales manager.

ArcelorMittal makes standard 80-foot rail but is discussing longer lengths. It also is making significant investments at its Steelton, Pa., plant to make harder, stronger premium rail.

"Domestically, we have another entry," he said of SDI. "But we face manufacturers from Asia and Europe all the time." And ArcelorMittal also will continue to slug it out with RMSM, he said. "They're big in the West, we're big in the East, and in the middle of the country it's a jump ball."

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